Drought in New Zealand and flat milk production in the U.S. drove prices higher last week for U.S. dairy products.

Block cheese prices on the CME cash market jumped 9 cents a pound to $1.70 last week and barrels increased 7.5 cents a pound to $1.66. Class III futures prices for June jumped 70 cents per hundredweight of milk to $18.85 and are up over $19 per hundredweight for July through September.

U.S. prices responded to prices at last week's Global Dairy Trade auction, with buyers showing concern over the drought in New Zealand, analysts say.

Dairy product users are getting more and more worried about their ability to purchase product from New Zealand in the summer months, so prices moved significantly higher at the GDT auction, said Sabrina Sharp, market analyst for the Daily Dairy Report.

Whole milk powder was up double digits to record highs, and the average of all products traded was up 10 percent, she said.

That will make the U.S. more competitive on exports. The U.S. has plenty of cheese and butter available and isn't anywhere near a shortage at the moment, she said, but end users are working to make sure they are able to get product later this year when global inventories are expected to be lower.

New Zealand's production was good the first part of the year and exports were strong, but the country has committed most of its stocks. Production is falling due to pastures drying up and producers are drying up cows quicker, said Bob Cropp, professor emeritus with the University of Wisconsin-Madison.

The same thing is happening in Australia and Argentina, and production in Europe is flat, he said.

Some dairy products in global trade last week were the highest in two years, and that opens up opportunity for U.S. exports, he said.

U.S. cheese exports are up 13 percent compared with last year, butter is up 40 percent, and whey protein is up 54 percent, he said.

"It's going to help our exports. It's going to help strengthen our prices," he said.

He expects the U.S. all-milk price to hit $19 per hundredweight this summer and wouldn't be surprised to see it hit $20. Class III futures prices are $19 plus for June through September and only drop off to the high $18s for the remainder of the year, and it's possible they'll stay there, he said.

Cheese and butter prices have already strengthened considerably, he said.

Slowing U.S. milk production is also helping markets. Adjusting for last year's leap day, milk production in February was only up fractionally. Production across the West is down 2 percent to 5 percent, and production in the Midwest slowed to an increase of only 1 percent to 2 percent, Sharp said.

Further slowing of milk production in the Midwest is expected in March, due to a cold winter, she said.

But milk per cow is still very strong. Leap-year-adjusted milk production was up 0.1 percent in February, compared with very strong production in February 2012 due to a mild winter. That slight increase was done with 32,000 fewer cows, she said.

The February USDA-NASS milk production report shows producers are still trying to increase production a little. Producers are hoping for a better corn crop and lower feed prices, said Wilson Gray, extension livestock economist with the University of Idaho.

While production was only up fractionally in February, January milk production in many states took a pretty good hit for a total increase in milk production of only 0.6 percent, he said.

Cheese price have been moving up most of March until the last couple of days. Part of that was the build-up to Easter, with the anticipation of higher cheese usage.

Now that Easter's here, prices have backed off a bit. BBQ season isn't quite here, but that will boost cheese usage and support prices, he said.